Friday, August 22, 2008

Banks safe after forex fallout

Jamaica's central bank says it sees no sign of impact on the island's economy on the apparent collapse of a number of so-called alternative investment schemes.

Neither have they detected any impairment of commercial banks from the fallout, Bank of Jamaica (BOJ) governor, Derick Latibeaudiere, told reporters Wednesday.

"We have seen no impact on their ratios," he said. "I haven't seen any movement that would cause us concern."

The investment schemes, which fought attempts at being brought into the regulatory net, mushroomed in Jamaica during the past three years, offering returns, in some cases, of upwards of 10 per cent per month.

Most said they were involved in foreign exchange trading.

One think-tank estimated that Jamaicans invested between $100 billion and $200 billion in these schemes, so when they started a seeming slow motion meltdown earlier this year there were fears that it could hurt the economy.

According to Latibeaudiere, banks here were still showing debt impairment ratios of under three per cent, in line with their normal rates. And neither had he seen any fall-off in deposits.

"It (the fallout) could have an impact on consumption and on some people's expenditure plans," Latibeaudiere said.

No impact

"But overall, given the nature of the schemes and the circularity of the flows (which should make such an impact obvious) I don't see an impact on the economy. We haven't seen that macro-economic impact."

The central bank boss conceded the difficulty, given their lack of regulation, at arriving at real numbers on these schemes.

Indeed, much of the information about them has been anecdotal. Officials at one mortgage bank, Victoria Mutual Building Society (VMBS) recently suggested, for instance, that part of its difficulty in raising deposits last year was because of the prevalence of the schemes.

They seemed to believe that a recent uptick in the bank's deposit accounts was because of the demise of the unregulated forex traders.

Luxury vehicles

There have also been suggestions that people who enjoyed the heady returns from these schemes drove the market for luxury vehicles and up-scale real estate.

The suggestion is that such purchases have dipped, but these claims have not been bolstered by empirical data.

And, based on Latibeaudiere's pronouncement, no data has yet emerged to back the claim that people borrowed heavily from banks to invest in the alternative schemes.

"The loan loss (ratio) is very strong in the banks," Latibeaudiere said.

He added: "The central bank is not seeing it as an issue at all. Based on my discussions, there isn't any evidence of a major fallout."